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China’s housing minister says troubled property developers must go bankrupt

LawChina's housing minister says troubled property developers must go bankrupt

China’s real estate contributes about 30% to its GDP

What’s the story

China‘s housing minister, Ni Hong, has announced that real estate developers facing severe insolvency must declare bankruptcy and undergo restructuring.

This statement comes amid rumors of China easing its crackdown on real estate sector debt.

Experts believe that Beijing’s main focus is on ensuring the completion of property projects rather than rescuing developers.

The government’s decision comes at a time when the Asian giant’s real estate sector, which is the biggest contributor to its GDP, is battling a slowdown.

No bailout for distressed property developers

Ni clarified that the Chinese government will not bail out struggling property developers.

“Real-estate companies that are seriously insolvent and have lost their operating capabilities must go bankrupt and be restructured in accordance with the principles of the rule of law and marketization,” the minister stated.

This remark sheds light on Beijing’s approach to tackling its long-standing real estate crisis.

Last month, it was reported that China’s biggest private property firm Country Garden Holdings is facing liquidation.

Speculation on relaxing crackdown dispelled

“Houses are for living in and not for speculation,” a slogan given by Xi Jinping in 2016 and repeatedly featured in key policy papers, did not make it to Premier Li Qiang’s recent government work report.

The phrase sparked the possibility about China relaxing its crackdown on sector debt. However, Ni’s comments have put such rumors to rest.

He said “the task of stabilizing the market remains arduous” and Beijing will enhance home sales in a “forceful” yet “orderly” manner.

No policy shift for China’s housing sector

Analysts Jizhou Dong and Riley Jin from Nomura believe that Ni’s statements indicate no change in policy for China’s housing sector, even though local governments can ease their policies.

They explained that the minister has made it clear that non-functional developers that are insolvent should go through bankruptcy or restructuring process.

The government’s priority is to ensure delivery of property projects and not to protect the business of developers.

China has set a 5% growth target in 2024.

What’s troubling real estate in China?

In China, contrary to India, the urban population now far exceeds its rural minority. This has slowed down the pace of rural-urban migration to a great extent. The decline in urbanization has led to decline in demand for urban housing resulting in real estate slump.

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